Clearly words and meanings evolve with time - but this change, when related to small businesses, seems to have been subtle and yet rapid and is now in danger of becoming common-place without any official sanction, announcement or recognition.
By a process of osmosis, a generation of businessmen and women have been gradually deemed to have shifted from a category of 'managing their tax affairs well - and within the law' to being little short of criminals who need 'clamping down on', and legislation is the only way to prevent them doing what everyone else is completely entitled to do.
This was perhaps most typified by Dawn Primarolo, the Paymaster General, who implied that freelancers were 'tax cheats' in the House of Commons during an IR35 debate about small companies who 'avoid' tax and NI , when she asked 'why they should be allowed to continue cheating honest taxpayers?'. Since then, the methodology of dispensing the message has become more subtle.
I admit to neither being an accountant or a lawyer, and would welcome their views on this, - but as a journalist I was schooled in the practice of using the right definitions for the right meaning.
From early in my career, I was banned from claiming in print that something was 'miraculous' until the Pope had sanctioned it as such; and the use of 'greatest' could not be made without a prior scanning of the Guinness Book of Records.
However, slowly - and almost without notice - definitions have changed when it comes to small businesses and freelancers.
- Tax saver
I would view myself as a 'tax saver' if I choose not to smoke, drink, drive a car or other such voluntary action which means I do not incur additional tax charges. Nothing seems to have changed there.
- Tax avoider
I would view myself as a 'tax avoider' if I arrange my personal and business affairs efficiently and effectively within the bounds of the current legislation. On some occasions, actively encouraged by - and using schemes introduced by - the Government, such as ISAs, (and their predecessors of PEPs and Tessas). Or when taking the advice of my accountant in how to arrange my business affairs to maximise the benefit for my own small business. In short, tax avoiding is a form of tax planning, taking advantage of the best advice and opportunities around.
- Tax evader
Is the equivalant of a 'Do not pass go, do not collect £200, go straight to jail'. My understanding is that tax evading is a criminal offence, committed with intent to defraud. Examples of which are colloquially known as 'fiddling the books' - you know the risk and if you get caught out, you will be banged to rights and there are many high profile cases which demonstrate this.
Blurring the edges
At some time - and without warning - in the past few months, the 'tax avoider' has become the 'tax evader' when mentioned in the context of small businesses and freelancers.
I realised this particularly when reading the press coverage after the Budget when Chancellor Gordon Brown closed several 'loopholes' for small businesses who had been operating within the law (on some occasions created and promoted by this Government) and, on many occasions, with best professional advice available at the time.
All of a sudden, they were portrayed as little better than a Del Boy character trying to take advantage of the latest 'scam'. In my role of editor of Shout99, I talk to freelancers and small businesses daily and have never come across one who thought he or she was operating their business solely as a tax dodge. The majority are struggling to pay a decent wage, pay their legitimate taxes and hopefully, have a bit left over in their companies to cover the 'rainy days'.
But, for example, on March 18, in the Daily Mail - hardly an organ perceived as the mouthpiece of the current Government, their Budget coverage referred to:
- At a glance guide to the Budget
Referring to the registration of anti-avoidance schemes:
Tax loophole stopped - Loophole closed by forcing accountants to register tax avoidance schemes with tax authorities
As part of the Government's clampdown on tax avoidance, accountancy firms will have to register tax planning schemes with the Inland Revenue before selling them to companies and high-earning individuals
- Tax loophole turns into a noose
Referring to the 19 per cent tax on dividends:
The move is expected to hit hundreds of thousands of firms that have incorporated in the past two years specifically to take advantage of the tax loophole.
..and under a headline in the Times
- Tax avoiders in a spin as 'lemons are squeezed'
In fact, the post-Budget coverage whether it was related to IR591 - the new dividend tax; the tightening of Section 660 - the business tax between families and friends; the continuation of IR35 - the 'disguised employees tax'; or the requirement to register anti-avoidance schemes seemed incapable of not linking the words small business with emotive phrases like closing loophole, clampdown or tax avoidance - with an unstated implication that something a 'bit dodgy' had been going on, which needed sorting out.
It seems to have been forgotten that incorporation of small enterprises was actively encouraged by the Government - and in some cases, the only way small consultancies could operate. The 'carrot' was generously offered, but now the 'stick' has come out for daring to eat it.
What the Chancellor said..
This subtle change in language does not happen automatically. In these days, when communication is King, the manner of the delivery of the message has an impact on its reporting and subsequent understanding.
The Chancellor mentioned the word 'loophole' only three times in his hour-long Budget speech. On each occasion it was directly or indirectly related to small businesses:
what he said about 'dividend tax'
I would like to do even more to encourage new and growing businesses to invest and expand. I can only do so if we close a loophole under which some have, without changing their economic activity, used our zero tax rate -- not to invest and grow but simply to avoid tax and national insurance by reclassifying their income as dividends.
...and again on 'dividend tax'
But I will close the loophole by taxing distributed profits at 19 per cent, bringing the tax on distributed profits for those small companies into line with other companies.
...and on anti-avoidance schemes (the detail of which is not yet known for small companies but has already been causing concern)
It has been put to me that we should now introduce a general anti-avoidance rule. I do not at this stage intend to introduce this but I will today close loopholes in partnerships, finance leasing and VAT and make it a requirement - as in the USA - that accountancy firms and those promoting schemes register them with the Inland Revenue.
Similarly, the Chancellor used the word avoidance only once - and that was in association with small businesses.
On IR591 - the new dividend tax
There are those who have proposed that to tackle this avoidance we should abolish the zero and reduced rates altogether.
The term 'evasion' - a criminal offence - never passed his lips. But the implications that 'avoidance' needed stamping out in relation to small businesses was the same in the Government reports which came out after the Budget.
On the strengthening of Section 660 - the married couple's business tax
This closes a loophole currently being exploited by owners of close companies, and will not apply to income from jointly owned shares in non-close companies or to other assets in joint names such as rental property.
What's in a name?
Phrases and definitions evolve over the years - and that is an accepted development of the English language.
Clearly my grandmother's generation would view an invitation to a 'gay' party, with somewhat different expectations to those I might hold. And I now understand when my nieces tell me something was 'wicked', they are not referring to behaviour comparable with that of the Evil Queen in 'Snow White and the Seven Dwarfs'.
However, the precise language and terminology are powerful tools in permeating the nation's sub-conscious and when 'loophole' and 'tax avoidance' are continually reinforced and repeated in association with 'freelancers' and 'small businesses', gradually there is a general acceptance that this is something which needs to be corrected.
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Susie Hughes © Shout99.com 2004